The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub-Saharan Africa

Leonce Ndikumana and Sher Verick

No 3296, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: While the recent increase in foreign direct investment (FDI) to African countries is a welcome development, the question remains as to the impact of these resource inflows on economic development. This study posits that a key channel of the impact of FDI on development is through its effects on domestic factor markets, especially domestic investment and employment. In this context, this study analyses the two-way linkages between FDI and domestic investment in Sub-Saharan Africa. The results suggest that firstly, FDI crowds in domestic investment, and secondly, countries will gain much from measures aimed at improving the domestic investment climate. Moreover, there are alternatives to resource endowments as a means of attracting foreign investment to non-resource rich countries.

Keywords: FDI; private investment; public investment; Africa (search for similar items in EconPapers)
JEL-codes: E22 F21 F23 O16 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2008-01
New Economics Papers: this item is included in nep-afr and nep-dev
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (79)

Published - published in: Development Policy Review, 2008, 26 (6), 713-726

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